Your money questions answered

Question: If a large investment firm went bust, would I lose the money I have in mutual funds, IRAs or other accounts? --Gerry Cheok, Gaithersburg, Md.

Answer: To date, no mutual fund company has failed. In this market, though, anything is possible. But even if a fund family were to go belly up, the money you have in its funds -- whether in an IRA, a 401(k) or any other account -- would be safe. Here's why.

First, unlike when you buy a CD at a bank, the money you invest in a mutual fund doesn't become part of the assets of the parent firm. Instead, it goes to whichever mutual fund you're buying, which is a separate entity. In fact, the fund company doesn't even own the funds under the firm's name; it merely has an agreement to manage the assets and sell shares. If the parent company went bankrupt, the assets of individual funds would not be available to the firm's creditors. Finally, to protect shareholders, federal law requires funds to have insurance that covers instances of fraud, embezzlement and the like.

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